The English High Court (the "Court") has refused to order costs to a claimant who successfully enforced an arbitration award, because the claimant did not satisfy its duty of full and frank disclosure when making a without notice enforcement application to the Court. In Leidos Inc v The Hellenic Republic [2019] EWHC 2738 (Comm), the claimant failed to explain to the Court that the defendant's challenge of the award in Greece (the seat of the arbitration) might constitute a defence to enforcement in England. Even though the claimant was ultimately successful in enforcing the award, the Court held that this "serious" and "material" omission meant it would be unjust for the defendant to pay the claimant's costs.
Background
The initial dispute concerned a contract for the development of a public security system to be used during the Athens Olympic Games in 2004. As a result of this dispute, Leidos (the "Claimant") commenced arbitration proceedings against The Hellenic Republic (the "Defendant") in 2009. The seat of the arbitration was in Greece and the arbitration was brought under the rules of the International Chamber of Commerce ("ICC"). On 2 July 2013, the ICC tribunal found in the Claimant's favour and issued an award of 40 million euros (the "Award").
The Claimant attempted to enforce the Award in Greece, but the Defendant consistently resisted enforcement. This culminated in an appeal to the Greek Supreme Court in 2018 where the Defendant challenged the Award and requested that the Greek Supreme Court suspend enforcement of the Award whilst the appeal was being heard. The Greek Supreme Court accepted this request and on 18 October 2018 suspended enforcement of the Award until it had considered the Defendant's appeal in full.
Shortly afterwards, and whilst the appeal before the Greek Supreme Court was still being heard, the Claimant brought enforcement proceedings in England, making a without notice application to the Court to enforce the Award pursuant to section 101 of the English Arbitration Act 1996 (the "Act"). The Claimant notified the Court of the Defendant's appeal before the Greek Supreme Court, but did not explain that this appeal might constitute a defence to enforcement under section 103(2)(f) of the Act, which states that enforcement may be refused where "the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, it was made". The Court granted the Claimant's application and made an order for enforcement of the Award on 30 October 2018 (the "Enforcement Order").
On 22 March 2019, the Enforcement Order was served on the Defendant, at which point the appeal proceedings before the Greek Supreme Court remained ongoing. In response to being served, the Defendant requested that the Claimant stay enforcement proceedings in England until the appeal before the Greek Supreme Court was determined. However this could not be agreed between the parties as the Defendant refused to concede to the Claimant's demand for full security for the Award as a condition of any stay. Accordingly, on 13 June 2019, the Defendant applied to the Court to have the Enforcement Order set aside on the grounds of section 103(2)(f) of the Act.
However, within a week of the Defendant's set aside application, the Greek Supreme Court handed down its judgment, dismissing the Defendant's final appeal and lifting the suspension on enforcement of the Award. The effect of this judgment was that the Defendant's section 103(2)(f) argument fell away, and it no longer had any realistic ground on which to resist enforcement of the Award. The Defendant therefore agreed to withdraw its set aside application, and subsequently took steps to pay the Award.
The remaining issue for the Court was to make an order for costs in relation to the enforcement proceedings before it. Each side sought its full costs of the proceedings from the other party.
The Court's decision on costs
The Court noted that the general rule on costs is set out in CPR 44.2(2), which states that the unsuccessful party will be ordered to pay the costs of the successful party, but that the court can make a different order. Further, the Court explained, as set out in CPR 44.2(4), that when making a costs order it must have regard to all of the circumstances, including the conduct of all of the parties. In light of these provisions, the Court had to determine two main issues: (1) whether the Claimant was the successful party in the case, and therefore entitled to its costs as a general rule; and (2) if so, whether a different costs order should nonetheless be made bearing in mind the circumstances of the case.
- Was the Claimant the successful party in the case?
The Defendant submitted that the Claimant was not the successful party in the case because the Claimant was misconceived in bringing an enforcement application whilst the Award was still being appealed before the Greek Supreme Court, and therefore that the Defendant's set aside application would have succeeded at the time it was made under section 103(2)(f) of the Act. The fact that the Greek Supreme Court subsequently dismissed the appeal, thereby lifting the suspension of enforcement, did not retrospectively justify the Claimant bringing its enforcement application at an inappropriate time.
The Court agreed with the Defendant's point that its set aside application would have succeeded at the time it was made. It first noted that there is no prior authority on the interpretation of section 103(2)(f) of the Act, and whether the reference in this provision to an award being "suspended" also encompasses the suspension of enforcement of an award, as the Greek Supreme Court ordered. However, the Court decided that it would make no sense to distinguish between the suspension of an award and the suspension of enforcement of an award, therefore it held that the order of the Greek Supreme Court satisfied the wording in section 103(2)(f) of the Act and it would have been "highly probable" that the Defendant's set aside application would have succeeded if it had proceeded.
However, the Court rejected the Defendant's argument that it should focus exclusively on the merits of the enforcement application when the application was made. Rather, the Court held that it should take into account the position when the application was determined. In taking this approach, the Court noted that the Defendant's set aside application became unsustainable as a result of the Greek Supreme Court judgment. Consequently, the Enforcement Order was not set aside and the Award was subsequently paid by the Defendant. In these circumstances, the Court held that the Claimant should be treated as the successful party in the case, and accordingly the starting point should be that the Defendant should pay the Claimant's costs under the general costs rule.
- Should a different costs order be made in the circumstances of the case?
The Defendant made two points in support of its argument that it should nevertheless not pay the Claimant's costs bearing in mind the circumstances of the case, both of which were accepted by the Court.
First, and most significantly, the Defendant argued that the Claimant failed in its duty to provide full and frank disclosure when making its without notice enforcement application, in not drawing the Court's attention to section 103(2)(f) of the Act, which was a potential defence to enforcement. The Court agreed with this point, stating that the duty of full and frank disclosure requires the Claimant to identify the crucial points for and against the application, both factual and legal. Thus it was not acceptable for the Claimant to argue that it had set out the facts of the appeal before the Greek Supreme Court in full – the Claimant should have referred to the legal significance of these facts in the context of section 103(2)(f) of the Act. The Court also rejected the Claimant's argument that it referred to section 103(5) of the Act, which contained a cross-reference to section 103(2)(f) – this was not sufficient, a full legal argument should have been made based on section 103(2)(f). The Court stated that this omission by the Claimant was "material" and that the Claimant was "highly culpable" resulting in a "very clear failure" to satisfy the requirements of full and frank disclosure.
Second, the Court also held that the Defendant's offer to stay enforcement proceedings pending the Greek Supreme Court's final decision should reasonably have been accepted by the Claimant, and that this would have saved costs. The Claimant's demand for full security as a condition for agreeing to this stay was inappropriate, given the existence of a potential defence for the Defendant under section 103(2)(f) of the Act.
The Court therefore departed from the general costs rule and refused to order the Defendant to pay the Claimant's costs. However, the Court also declined to order the Claimant to pay the Defendant's costs, stating that it would not be just to order a successful party to pay the costs of an unsuccessful party. Therefore, each party had to bear their own costs.
Comment
This rare example of a party successfully enforcing an arbitration award before the English courts but not being awarded the costs of such an application demonstrates the high threshold for satisfying the duty of full and frank disclosure when making a without notice enforcement application. To satisfy this requirement, it is not enough for an applicant to provide the court with the full factual context of the case, it must also make the specific legal arguments which the respondent party would have made to the court, even if the applicant does not believe that such arguments are applicable on the facts.
This case is also the first instance of an English court interpreting the meaning of a "suspended" award under section 103(2)(f) of the Act. The judgment clarifies that the wording of this provision also encompasses the suspension of enforcement of an award. It therefore provides an authority that, in circumstances where enforcement of an award is suspended by the courts of the seat of the arbitration, it is "highly probable" that a respondent party will be able to resist enforcement in England pursuant to section 103(2)(f) of the Act.
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